"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Friday, September 30, 2011

The Colonel's Friday Thoughts on Gold; Euro Moly Drops

"Copper Flower" - Metal Art by Mariana Titus

My latest Kitco Commentary: Why is Gold More Volatile than Copper, Oil or Silver? (09-19-2011)

This morning's...
COMEX Gold price = $1616.6/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 103.76
Value Adjusted Gold Price© (VAGP) = $1301.9/oz
COMEX - VAGP = $314.7/oz; gold is trading at a premium; gold:copper & gold:oil ratio are at recessionary levels



Morning Miners!

It is 5:42 AM. have a welcome cup of good old Raine's Red Label TGIF java. A rough week and bad coffee for the last two days with Old Miner Woden's Cold Reality brew and Thor's Stormy Markets. Let's hope the coffee and markets get better for miners in October...

The Colonel's input to the Weekly Kitco Gold Survey

Below is my weekly input to the Kitco gold survey. I wouldn't be surprised to see $1,650/oz gold with $3.30/lb copper and $82.5/bbl WTI light crude next week. A slow return to stability is the trend for all three.

It appears gold has turned the volatility corner. From Aug. 23 to Sept. 23, COMEX gold was more volatile than COMEX copper, NYMEX oil and COMEX silver. This is an extremely unusual condition with decidedly bearish overtones. Fortunately, gold is now marginally less volatile than all three thereby returning to a more normal relation. Secondly, the correlation trajectories for copper, oil and silver with respect to gold are less bearish which should lower gold-referenced commodity ratios; presently at recessionary levels for copper and oil.

A picture is worth many words and numbers. Here is a 13-month plot of volatility for copper (red line), oil (dark gray line) and silver (light gray line), all with respect to gold (a larger more readable chart can be found at the bottom of the blog page):


The encouraging news is that all three curves have moved back above the 1.0-line (dashed circle). Volatilities less than one imply gold is more volatile relative to that commodity (red arrow).

If you prefer words and numbers here's a bunch...

Background note:

Here are the 3-month volatility (VOL) numbers as of this morning (a number greater than 1 indicates gold is less volatile):

VOL(Cu, Au) = 1.292
VOL(Oil, Au) = 1.090
VOL(Ag, Au) = 1.325

To give this perspective, copper and oil volatilities relative to gold have hit the 4-5range and silver has peaked to 7 earlier this year. Numbers near one denote we are now only at the very threshold of more normal price fluctuations - good news nonetheless.

Another uplifting indication is 1-month correlation. In market downturns it is not unusual to see high positive correlation across a broad range of assets due to selling pressure and outright liquidations. Copper and oil have had negative 1-month and 3-month correlations relative to gold, another very bearish sign in the metals complex. However, the recent turn from negative to positive 1-month correlation will erode the negativity of the longer term number. If this continues we may see a return to all positive correlation which is bullish.

Here are the key correlations (CORREL) this morning:

CORREL(Cu, Au) +0.9437(1-month) -0.3111 (3-month)

CORREL(Oil, Au) +0.7580(1-month) -0.6248 (3-month)

And with respect to silver,we're already there:

CORREL(Ag, Au) +0.9822(1-month) +0.5383 (3-month)

When prices move together (i.e. positive correlation), commodity ratios relative to gold stabilize. The Au:Ag ratio has recently retreated from so-called recessionary levels (i.e. < 57 oz/oz) at 53.4 oz/oz. Au:Oil and Au:Cu are still dangerously elevated above their threshold level (i.e.>20bbl/oz and >400 lb/oz) at 20.09 bbl/oz &506.3 lb/oz but more positive correlations going forward should aid compression.  

Euro Moly Drops

The last shoe in this week's moly drama fell yesterday as euro moly oxide grabbed a 13-handle at $13.95/lb. The report predicted yesterday that euro moly would soon drop below the London Metal Exchange 3-month seller contract at $14.06/lb. C'est la vie.

Have a peaceful weekend, pardner.



Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index© (EMI) is below-par at 31.19, down from yesterday's 36.69 and below the 1-month moving average of 82.42. The 1-month average is currently below the 100-level putting us solidly in bear country.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the new low set on 9/26/2011 is 30.23. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used to update mining equity norms in the EMI on a monthly basis.

Gold Value Index (GVI

The Eureka Miner’s Gold Value Index© (GVI) is above-par at 103.76, up from yesterday's 102.22 and above its 1-month average of 100.18. The Value Adjusted Gold Price© (VAGP) is $1,301.9/oz which is $314.7/oz below the current COMEX gold price.

The GVI initially trended down from 6/7/2010 when it had a value of 100; gold regained value reversing the trend, moved sideways for a time and and headed back up with vigor. A sustained presence around the 100-level may prove to be a recession warning for a second dip down in the economy.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil derivatives are a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Debt Crisis Watch

July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI and GVI indices. Today, the DCI has a value of 236.4 up from yesterday's 227.9. Our benchmark is 100, a value of the DCI at a level above 200 is time for serious concern. We are now above that level.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $80.46
ICE North Sea Brent crude $102.35
Spread (ICE- NYMEX) = $21.89 (yesterday, $22.18)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $80.75
ICE North Sea Brent crude $100.09
Spread (ICE- NYMEX) = $19.54 (yesterday, $19.88)

* NYMEX futures contracts have rolled forward, we now show November and January for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $80+ NYMEX in January favoring high oil prices throughout the late fall and early winter although we may see further pressure to the downside. My last December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is seriously below its 200-day moving average of $51.92 (our new key level, 09/21 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The ORANGE light is turned on for Commodity Reflation with copper trading below $3.50/lb

The YELLOW light is turned on for Stable Markets with the VIX above the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates until mid-2013

The RED light is turned back on for Investor Confidence with investors very adverse to commodity-sensitive equities

The YELLOW light is turned on our Fuel Gauge with oil above $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $1.68 in early trading at $80.46 (November contract, most active); Gold is down $0.7 to $1616.6 (December contract, most active); Silver is down $0.257 to $30.265 (December contract, most active); Copper is down $0.0530 at $3.1930 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $14.00; European Molybdenum Oxide (Bloomberg) is $13.95; LME cash seller is $14.06, LME moly 3-month seller's contract is $14.06

Stock Market Morning Update

The DOW is down 95.78 points to 11,058.20; the S&P 500 is down 13.91 points at 1146.49

Miners are mixed:

Barrick (ABX) $47.14 up 1.92%
Newmont (NEM) $64.37 up 2.96%
US Gold (UXG) $4.07 down 1.93%
General Moly (Eureka Moly, LLC) (GMO) $2.80 down 4.11%
Thompson Creek (TC) $6.12 down 2.55%
Freeport-McMoRan (FCX) $30.86 down 1.53% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $8.78 up 0.22%
Timberline Resources (TLR) $0.59 down 3.28%

The Steels are down (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $16.29 down 3.44% - global steel producer
POSCO (PKX) $77.69 down 1.92% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.97% at $1,286,916.56 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas Intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Note 2 - The impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd and was followed by an S&P credit downgrade. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

Headline photo by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Thursday, September 29, 2011

Gold Volatility Turns the Corner; Western Moly Drops


My latest Kitco Commentary: Why is Gold More Volatile than Copper, Oil or Silver? (09-19-2011)

This morning's...
COMEX Gold price = $1,630.6/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 102.22
Value Adjusted Gold Price© (VAGP) = $1,332.8/oz
COMEX - VAGP = $297.8/oz; gold is trading at a premium; gold:copper ratio remains at recessionary levels



Þūnresdæg
Morning Miners!

It is 5:36 AM. Have a cup of Thor's Stormy Markets. Our favorite Norseman and I threw out Woden's terrible Cold Reality brew early this morning. Thor isn't a market bear or a bull, he just likes storms of any kind. For the past several weeks he's been singing,

Don't know why there's no sun up in the sky
Stormy markets since gold and metals ain't together
Keeps raining all the time, the time
Demand is down, gloom and debt everywhere
Stormy markets, just can't get Miss Moly together
It's raining all the time, the time


...to the tune of Harold Arlen's classic "Stormy Weather." Thor has a pretty good baritone but may have to change his tune...

Gold Volatility Turns the Corner

As for headlines, today is pretty upbeat. The Germans overwhelming approved the expansion of the EFSF rescue fund; so did Finland which was perceived challenging. As Woden pointed out yesterday, you need all 17 euro-zone countries to approve this plan but Germany and Finland buy-in does denote significant progress.

Domestically there were positive surprises in gross domestic product (GDP) for the second quarter and the number of idled U.S. workers filing new claims for unemployment benefits fell sharply last week. GDP, the broadest measure of all the goods and services produced in our economy, grew at an inflation-adjusted annual rate of 1.3% from April to June, the expectation was 1.2%. Not great but certainly not negative. This morning's markets are showing upticks in oil, precious metals and base metals after yesterday's washout.

How do we know if we're really doing any better? I prefer to monitor commodity prices rather than headlines to answer this question. One of the peculiar aspects of this recent downturn has been the high volatility of gold relative to key commodities. The ole Colonel examined this in his Sept. 19 Kitco commentary, "Why is Gold More Volatile than Copper, Oil or Silver?"

Here is some encouraging news: it appears gold has turned the volatility corner. From Aug. 23 to Sept. 23, COMEX gold was more volatile than COMEX copper, NYMEX oil and COMEX silver. This is an extremely unusual condition with decidedly bearish overtones. Fortunately, gold is now less volatile than all three - a more normal relation. Here are the 3-month volatility (VOL) numbers as of this morning (a number greater than 1 indicates gold is less volatile):

VOL(Cu, Au) = 1.188
VOL(Oil, Au) = 1.053
VOL(Ag, Au) = 1.232

To give this perspective, copper and oil volatilities relative to gold have hit the 4-5 range and silver has peaked to 7 earlier this year. Numbers near one denote we are now only at the very threshold of more normal price fluctuations - good news nonetheless.

Another uplifting indication is 1-month correlation. In market downturns it is not unusual to see high positive correlation across a broad range of assets due to selling pressure and outright liquidations. Copper and oil have had both negative 1-month and 3-month correlations relative to gold, another very bearish sign in the metals complex. However, the recent turn from negative to positive 1-month correlation will erode the negativity of the longer term number. If this continues we may see a return to all positive correlation which is bullish.

Here are the key correlations (CORREL) this morning:

CORREL(Cu, Au) +0.9352 (1-month) -0.3859 (3-month)
CORREL(Oil, Au) +0.7277 (1-month) -0.6696 (3-month)

And with respect to silver, we're already there:

CORREL(Ag, Au) +0.8500 (1-month) +0.8391 (3-month)

Remember when prices move together (i.e. positive correlation), commodity ratios relative to gold stabilize. The Au:oil and Au:Ag ratios have recently retreated from so-called recessionary levels (i.e. <20 bbl/oz & <57 oz/oz) at 19.73 bbl/oz and 52.9 oz/oz respectively. Au:Cu is still dangerously elevated above its warning level(>400 lb/oz) at 499.6 lb/oz but more positive correlations going forward should aid compression.

All in all, maybe we are seeing some sunlight again and less stormy weather.

Western Moly Drops

As anticipated yesterday, western moly oxide (as posted on the General Moly website) has dropped in price below the London Metal Exchange (LME) 3-month seller contract re-establishing contango. Western moly notched down to $14/lb; the LME 3-month seller is presently at $14.06/lb. Euro-moly is still at $14.30/lb but I wouldn't doubt it will fall soon too.

As reported by the Steel Business Briefing (SBB) this morning, stainless steel production in Europe is under considerable pressure. Molybdenum is a key ingredient in the manufacture of stainless steel:

European stainless demand 'will take years to fully recover'

Although European stainless steel consumption is steadily improving from its trough following the 2008 financial crisis, there is still no real growth in demand when measured against pre-recession figures.

Even as far forward as 2015, consumption in the EU will show no growth on 2007 levels, Outokumpu executive Mark Perrins, told the 4th International Stainless Steel Symposium in Birmingham yesterday (28 September).
(SBB, 9/29/2011)



Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index© (EMI) is below-par at 36.69, down from yesterday's 43.43 and below the 1-month moving average of 86.46. The 1-month average is now below the 100-level putting us solidly in bear country.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the new low set on 9/26/2011 is 30.23. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used to update mining equity norms in the EMI on a monthly basis.

Gold Value Index (GVI

The Eureka Miner’s Gold Value Index© (GVI) is above-par at 102.22, up from yesterday's 101.77 and above its 1-month average of 99.89. The Value Adjusted Gold Price© (VAGP) is $1,332.8/oz which is $297.8/oz below the current COMEX gold price.

GVI initially trended down from 6/7/2010 when it had a value of 100; gold regained value reversing the trend, moved sideways for a time and and headed back up with vigor. A sustained presence around the 100-level may prove to be a recession warning for a second dip down in the economy.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil derivatives are a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Debt Crisis Watch

July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI and GVI indices. Today, the DCI has a value of 227.9 up from yesterday's 211.7. Our benchmark is 100, a value of the DCI at a level above 200 is time for serious concern. We are now above that level.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $82.66
ICE North Sea Brent crude $104.84
Spread (ICE- NYMEX) = $22.18 (Friday, $22.87)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $83.10
ICE North Sea Brent crude $102.98
Spread (ICE- NYMEX) = $19.88 (Friday, $20.31)

* NYMEX futures contracts have rolled forward, we now show November and January for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $80+ NYMEX in January favoring high oil prices throughout the late fall and early winter although we may see further pressure to the downside. My last December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is seriously below its 200-day moving average of $51.92 (our new key level, 09/21 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The ORANGE light is turned on for Commodity Reflation with copper trading below $3.50/lb

The YELLOW light is turned on for Stable Markets with the VIX above the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates until mid-2013

The RED light is turned back on for Investor Confidence with investors very adverse to commodity-sensitive equities

The YELLOW light is turned on our Fuel Gauge with oil above $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $1.45 in early trading at $82.66 (November contract, most active); Gold is up $12.5 to $1630.6 (December contract, most active); Silver is up $0.771 to $30.845 (December contract, most active); Copper is up $0.0175 at $3.2640 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $14.00; European Molybdenum Oxide (Bloomberg) is $14.30; LME cash seller is $14.06, LME moly 3-month seller's contract is $14.06

Stock Market Morning Update

The DOW is up 226.26 points to 11,237.16; the S&P 500 is up 19.82 points at 1170.88

Miners are up:

Barrick (ABX) $46.80 up 2.03%
Newmont (NEM) $62.35 up 1.33%
US Gold (UXG) $4.05 up 1.76%
General Moly (Eureka Moly, LLC) (GMO) $2.89 up 2.85%
Thompson Creek (TC) $6.47 up 3.35%
Freeport-McMoRan (FCX) $32.54 up 0.74% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.11 up 1.96%
Timberline Resources (TLR) $0.62 up 6.90%

The Steels are up (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $16.81 up 4.74% - global steel producer
POSCO (PKX) $80.28 up 3.73% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 2.41% at $1,304,328.58 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas Intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Note 2 - The impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd and was followed by an S&P credit downgrade. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

Headline photo by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Wednesday, September 28, 2011

Moly Futures Drop; Gold, Copper Pause

Trees grow slowly, time passes quickly.

My latest Kitco Commentary: Why is Gold More Volatile than Copper, Oil or Silver? (09-19-2011)

*** BREAKING NEWS *** The pause in gold and copper is beginning to look more like retreat (10:18 AM PDT). COMEX gold $1,624.7/oz down $27.8/oz; COMEX copper $3.2340/lb falling a full 6% (down $0.2055).

This morning's...
COMEX Gold price = $1,653.4/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 101.47
Value Adjusted Gold Price© (VAGP) = $1,361.5/oz
COMEX - VAGP = $291.9/oz; gold is trading at a premium; key gold-referenced commodity ratios are at or near recessionary levels (e.g., copper & oil)



Wōdnesdæg
Morning Miners!

It is 5:36 AM. Have a cup of Old Miner Woden's Cold Reality coffee. If it's too hot for you, there are some ice cubes in the frig. I'm starting to dread the middle of the week lately when this market curmudgeon rolls into town - Sweet Ruby T is just a lot more fun. Yesterday she brought us a cheery reversal in copper's fortunes and a nice uptick across the board for the metals & miners all buoyed by expectations for Europe's "Big Plan." I got an earful this morning as Woden jabbed my computer screen to point out a 2.4% drop in copper spot prices.

"Listen to me plain n' simple, Colonel! We've got two parties in this country, two-and-a-half if you throw in some tea leaves, and we can't agree on anything. Europe has to get 17 COUNTRIES to sign on to this here 'Big Plan.' What are the chances of that? Here, have a few more ice cubes from hell with your coffee!"

Looking at the markets today, that old geezer might have a point...

Moly Futures Drop

With all the recent volatility in the metals complex, molybdenum prices have been the exception. Although it seems we missed the anticipated August-September rally, spot prices have been pretty steady in the mid- to high-$14/lb territory; that may soon change to the downside.

This morning, on the General Moly (GMO) website, Western moly oxide is still posted at $14.50/lb and European moly has dropped a nickel to $14.30/lb. The problem is yesterday's price gaped down at the London Metal Exhange for moly futures: 3-month seller contract $31,000/metric ton ($14.06/lb) and 15-month seller contract $31,900/metric ton ($14.47/lb). The three-month seller has been in the range of $32,000-$34,000/metric ton ($14.51/b to $15.42/lb) since late June. The change from spot/futures contango to backwardation suggests near-term demand is holding but future price expectations are in decline. Watch for spot prices to fall below futures to re-establish a contango relation. Here is a 3-month chart of the LME 3-month seller's contract and yesterday's dip:

What's going on? This news snippet from today's Steel Business Briefing provides a few more ice cubes for your coffee:

Analysts: US flatrolled buyers frozen by economic fears - Continuing economic fears and excess production have US flatrolled buyers holding off until they can gain greater market clarity, two industry analysts say.

"We believe that weaker global steel pricing is being driven by increased economic fears, which is shaking confidence, resulting in push-back of buying decisions," Michelle Applebaum, managing partner at Steel Market Intelligence, says in a research note. "The overall uncertainty is delaying the seasonal demand rebound we typically see."
(SBB, 9/22/2011)

Molybdenum is a key alloy in many high-grade steels. Hang on, pardner.

Gold, Copper Pause

Old Miner Woden called me a "damn fool" for picking up a few shares of copper giant Freeport-McMoRan (FCX) last Wednesday. The price was $36.67/share with a 2.7% dividend. Today, FCX is $34.34/share rather ignominiously ending its 3-day rally. Bill O'Neill of Logic Advisors announced his intentions to buy copper this week so the ole Colonel has some company. On the other hand, old Miner Woden may be damn right. Please do your own research before piling into the red metal.

COMEX gold is presently up $0.9/oz at $1,653.4/oz; COMEX copper is down $0.0665/lb at $3.3730/lb. The gold:copper ratio remains at an elevated recessionary level of 490.2 lbs/oz.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index© (EMI) is below-par at 43.43, down from yesterday's 53.05 and below the 1-month moving average of 89.81. The 1-month average is now below the 100-level putting us solidly in bear country..

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the new low set on 9/26/2011 is 30.23. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used to update mining equity norms in the EMI on a monthly basis.

Gold Value Index (GVI

The Eureka Miner’s Gold Value Index© (GVI) is above-par at 101.47, up from yesterday's 100.77 and above its 1-month average of 99.66. The Value Adjusted Gold Price© (VAGP) is $1,361.5/oz which is $291.9/oz below the current COMEX gold price.

GVI initially trended down from 6/7/2010 when it had a value of 100; gold regained value reversing the trend, moved sideways for a time and and headed back up with vigor. A sustained presence around the 100-level may prove to be a recession warning for a second dip down in the economy.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil derivatives are a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Debt Crisis Watch

July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI and GVI indices. Today, the DCI has a value of 211.7 up from yesterday's 201.1. Our benchmark is 100, a value of the DCI at a level above 200 is time for serious concern. We are now above that level.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $83.58
ICE North Sea Brent crude $106.45
Spread (ICE- NYMEX) = $22.87 (Friday, $22.97)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $84.19
ICE North Sea Brent crude $104.50
Spread (ICE- NYMEX) = $20.31 (Friday, $20.88)

* NYMEX futures contracts have rolled forward, we now show November and January for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $80+ NYMEX in January favoring high oil prices throughout the late fall and early winter although we may see further pressure to the downside. My last December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is seriously below its 200-day moving average of $51.92 (our new key level, 09/21 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The ORANGE light is turned on for Commodity Reflation with copper trading below $3.50/lb

The YELLOW light is turned on for Stable Markets with the VIX above the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates until mid-2013

The RED light is turned back on for Investor Confidence with investors very adverse to commodity-sensitive equities

The YELLOW light is turned on our Fuel Gauge with oil above $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.87 in early trading at $83.58 (November contract, most active); Gold is up $0.9 to $1653.4 (December contract, most active); Silver is down $0.071 to $31.465 (December contract, most active); Copper is down $0.0665 at $3.3730 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $14.50; European Molybdenum Oxide (Bloomberg) is $14.30; LME cash seller is $14.06, LME moly 3-month seller's contract is $14.06

Stock Market Morning Update

The DOW is up 86.96 points to 11,277.65; the S&P 500 is up 5.19 points at 1180.57

Miners are mixed:

Barrick (ABX) $47.69 up 0.10%
Newmont (NEM) $63.70 up 0.39%
US Gold (UXG) $4.56 down 1.72%
General Moly (Eureka Moly, LLC) (GMO) $3.13 up 0.32%
Thompson Creek (TC) $6.64 down 1.04%
Freeport-McMoRan (FCX) $34.24 down 1.67% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.76 up 1.32%
Timberline Resources (TLR) $0.63 down 4.55%

The Steels are mixed (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $16.94 up 1.68% - global steel producer
POSCO (PKX) $79.69 down 0.55% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.37% at $1,357,818.78 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas Intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Note 2 - The impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd and was followed by an S&P credit downgrade. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

Headline photo by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Tuesday, September 27, 2011

Gold, Copper, Oil, Silver Bounce on the "Big Plan"


My latest Kitco Commentary: Why is Gold More Volatile than Copper, Oil or Silver? (09-19-2011)

This morning's...
COMEX Gold price = $1,654.3/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 100.77
Value Adjusted Gold Price© (VAGP) = $1,371.8/oz
COMEX - VAGP = $282.5/oz; gold is trading at a premium; key gold-referenced commodity ratios remain at recessionary levels (e.g., copper & oil)



Morning Miners!

It is 6:16 AM. Have a cup of Ruby T's Bull Rider java. Nothing like old Ruby to rally the markets after a brutal start yesterday. There she goes whistling "Blue Skies"...

Gold, Copper, Oil, Silver Bounce on the "Big Plan"

If you are skeptical that the problems of Europe don't affect this report's favorite metals, today should make you a believer. Yesterday afternoon, just the rumor that a "Big Plan" was on the drawing boards to save Europe from a spiraling debt crisis was enough to rally the broader markets and the metals complex. The "Big Plan" is expected to include potential expansion of the European Financial Stability Facility as well as plans for the European Union to aggressively recapitalize its banks. Some of this enthusiasm is tempered by the plan's use of leverage which will no doubt increase the associated credit risk and possible credit downgrades for a few of the euro-zone guarantors. A lot of little devils in those details but as Ruby T says, "A rally is a rally, let Old Miner Woden worry the details!"

Copper perked up and this morning is enjoying a 4% bounce off its 14-month low. NYMEX oil is up several bucks which makes some cringe until you remember that oil, like copper, is a reliable proxy for global growth. Oil climbing back into $80/bbl territory is just fine with me if it signals we may miss a global contraction. Even COMEX gold and its beleaguered companion silver are feeling good today regaining ground - presently trading at $1,654.3/oz and $32.585/oz respectively. Silver comes off a 10-month low and the closely watched gold:silver ratio has departed from "hyper-fear" levels (57 oz/oz and higher) to a much more normal 50.8 oz/oz.

The metals & miners do best when all the metals move together in a positive direction. The broader markets are now open and it looks like a dandy day for the miners too. General Moly (GMO) is back above $3, Barrick Gold (ABX) and Timberline resources are up 3% and US gold has a gain of 5%.

The best news for the ole Colonel...

The best news for the ole Colonel wasn't the "Big Plan" but a report yesterday by CNBC Business News that Bill O'Neill of Logic Advisors was considering buying copper and oil. At the time of that news, copper and oil were up slightly but hadn't caught this morning's fire. Why is this announcement important?

The Eureka Miner’s Gold Value Index© (GVI) establishes a value for gold relative to key commodities copper, oil and silver. This has proven to be an important tool for determining buy/sell and accumulate/reduce decisions. The GVI theory is to buy gold at the bottom of gold value cycles when you are confident that gold value and price will soon rise together

Bill O'Neill of Logic Advisors and Dennis Gartman of the Gartman Letter bought gold within a day of each other (April 20-21, 2011) shortly after the gold value low (GVI, April 11, 2011) as discussed in my August 22 Kitco commentary.

Th flip-side to this approach is that it should also make sense to buy copper and oil when gold is at the top of the value cycle and there is evidence that the prices of the red metal and oil are ready to move higher. Here is a 1-year plot of the GVI (a larger more readable chart is shown near the bottom of the blog page):


As this report has mentioned before, we find ourselves in a period of high gold value and volatility. Although gold dollar price has declined substantially, gold has maintained its value. From this plot we moved from a 2011 high yesterday (105.2) to near mid-range of the volatility (100.8) and very close to the 1-month moving average of 99.47. We will watch the next few weeks to see if Bill O'Neill has made the right bet supporting the "flip-side" GVI theory. Copper giant Freeport-McMoRan (FCX) has bounced nearly 6% in early morning trading - a good sign for Mr. O'Neill and the GVI too.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index© (EMI) is below-par at 53.05, up from yesterday's 30.23 and below the 1-month moving average of 92.54. The 1-month average is now below the 100-level putting us solidly in bear country..

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the new low set on 9/26/2011 is 30.23. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used to update mining equity norms in the EMI on a monthly basis.

Gold Value Index (GVI

The Eureka Miner’s Gold Value Index© (GVI) is above-par at 100.77, down from yesterday's record 105.22 and above its 1-month average of 99.47. The Value Adjusted Gold Price© (VAGP)COMEX gold price.

GVI initially trended down from 6/7/2010 when it had a value of 100; gold regained value reversing the trend, moved sideways for a time and and headed back up with vigor. A sustained presence around the 100-level may prove to be a recession warning for a second dip down in the economy.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil derivatives are a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Debt Crisis Watch

July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI and GVI indices. Today, the DCI has a value of 201.1 down from yesterday's 234.2. Our benchmark is 100, a value of the DCI at a level above 200 is time for serious concern. We are now above that level.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $82.34
ICE North Sea Brent crude $105.31
Spread (ICE- NYMEX) = $22.97 (Friday, $24.64)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $82.60
ICE North Sea Brent crude $103.48
Spread (ICE- NYMEX) = $20.88 (Friday, $22.19)

* NYMEX futures contracts have rolled forward, we now show November and January for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $80+ NYMEX in January favoring high oil prices throughout the late fall and early winter although we may see further pressure to the downside. My last December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is seriously below its 200-day moving average of $51.92 (our new key level, 09/21 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The ORANGE light is turned on for Commodity Reflation with copper trading below $3.50/lb

The YELLOW light is turned on for Stable Markets with the VIX above the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates until mid-2013

The RED light is turned back on for Investor Confidence with investors very adverse to commodity-sensitive equities

The YELLOW light is turned on our Fuel Gauge with oil above $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $2.10 in early trading at $82.34 (November contract, most active); Gold is up $59.5 to $1654.3 (December contract, most active); Silver is up 2.609 to $32.585 (December contract, most active); Copper is up $0.1565 at $3.4375 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $14.50; European Molybdenum Oxide (Bloomberg) is $14.35; LME cash seller is $14.74, LME moly 3-month seller's contract is $14.74

Stock Market Morning Update

The DOW is up 216.76 points to 11,260.62; the S&P 500 is up 25.61 points at 1188.56

Miners are mixed:

Barrick (ABX) $48.80 up 2.98%
Newmont (NEM) $65.79 up 2.17%
US Gold (UXG) $4.78 up 5.05%
General Moly (Eureka Moly, LLC) (GMO) $3.10 up 3.68%
Thompson Creek (TC) $6.95 up 7.59%
Freeport-McMoRan (FCX) $35.71 up 5.74% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.79 up 5.26%
Timberline Resources (TLR) $0.66 up 3.13%

The Steels are up (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $16.79 up 4.81% - global steel producer
POSCO (PKX) $81.20 up 4.18% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 4.35% at $1,389,158.90 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas Intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Note 2 - The impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd and was followed by an S&P credit downgrade. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

Headline photo by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Monday, September 26, 2011

Gold Drops to $1,535/oz Then Recovers; "Losses Enormous and Growing"

Global markets unhinged?

My latest Kitco Commentary: Why is Gold More Volatile than Copper, Oil or Silver? (09-19-2011)

*** BREAKING NEWS *** The S&P 500 reversed this morning to the upside - up 13.83 points or 1.22% at 1,150.26; COMEX gold has fallen further to $1,601.3/oz (9:02 AM PDT)

This morning's...
COMEX Gold price = $1,618.1/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 105.22
Value Adjusted Gold Price© (VAGP) = $1,284.9/oz
COMEX - VAGP = $333.2/oz; gold is trading at a premium; key gold-referenced commodity ratios remain at recessionary levels (e.g., copper & oil)


Morning Miners!

It is 5:35 AM. Have a Monday cup of ether to get your diesel running. The global markets may need more than ether...

Gold Drops to $1,535/oz Then Recovers; "Losses Enormous and Growing"

Let's start the week with our favorite metal - COMEX gold dropped more than $100/oz in very early trading to see $1,535.0/oz. Fortunately, gold bounced back up above $1,600/oz and is presently trading at $1,618.1/oz. Ironically, gold is still doing better relative to key commodities and the Eureka Miner’s Gold Value Index© (GVI) is up From Friday's closing record of 104.6, currently posting 105.2 (see Daily Market Roundup below).

COMEX silver continues its downward spiral trading at $28.38/oz for a gold:silver (Au:Ag) ratio of 57.0. This is significant because ratio growth above the 50-56 range is a gauge of "hyper-fear" as silver positions are liquidated more aggressively than gold. After the Lehman Brothers bankruptcy, the gold:silver ratio soared into the 80s. Au:Ag will be very important to watch going forward.

COMEX copper is down some from Friday at $3.2450/lb but showing the earliest hints of stabilization. The gold:copper (Au:Cu)ratio nudged below 500 lb/oz at 498.6, a small improvement from Friday (a "normal" ratio in an unstressed market lies in the range of 300-400 lb/oz). To put this in some perspective, copper is 28% below the July closing price of $4.50/lb. At that time on July 29, gold closed at $1,631.2/oz, not too different from this morning's price. The Au:Cu ratio was then mid-range at 362 lb/oz - simply put, an ounce of gold in July bought 137 pounds more copper!

So what has caused all this calamity? Usual suspects: continued uncertainty in Europe and fears of a significant global slow-down. Hong Kong's Hang Seng Index fell to its lowest in more than two years, the Nikkei Stock Average lost 2.2% and Thailand's benchmark index fell an alarming 9%. Rising CME margin requirements put increased downward pressure on gold, silver and copper futures.

Kitco's Global Editor Debbie Carlson quoted Dennis Gartman as saying, "Never, in our 35 + years of watching, trading in, analyzing and commenting upon markets have we seen damage done such as this and the losses incurred are enormous and growing.” (Kitco Market Nugget, 8/26/2011).

Dennis Gartman is the editor/publisher of the "Gartman Letter" whose opinions are greatly respected by this report. According to the Kitco report, "Gold could see a short-term bottom at the $1,550-$1,560 an ounce area and a bounce could take prices back to $1,670-$1,700, but he [Gartman] expects selling to resume at that region."

Hang tight, pardner.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index© (EMI) is below-par at 30.23, down from Friday's 33.96 and below the 1-month moving average of 94.37. Today sets a new low for 2010 and 2011, the old low was 33.96 set on September 23, 2011. The 1-month average is now below the 100-level putting us solidly in bear country..

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the new low set on 9/26/2011 (today) is 30.23. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used to update mining equity norms in the EMI on a monthly basis.

Gold Value Index (GVI

The Eureka Miner’s Gold Value Index© (GVI) is above-par at 105.22, up from Friday's closing 104.60 and above its 1-month average of 99.13. Today is a new record high for 2011 at 105.22 (Friday morning actually had a slightly higher number but we count the Friday close for record keeping). The Value Adjusted Gold Price© (VAGP) is $1,284.9/oz or $333.2/oz below the current COMEX gold price.

GVI initially trended down from 6/7/2010 when it had a value of 100; gold regained value reversing the trend, moved sideways for a time and and headed back up with vigor. A sustained presence around the 100-level may prove to be a recession warning for a second dip down in the economy.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil derivatives are a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Debt Crisis Watch

July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI and GVI indices. Today, the DCI has a value of 234.2 up from Friday's 222.7. Our benchmark is 100, a value of the DCI at a level above 200 is time for serious concern. We are now above that level.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $79.22
ICE North Sea Brent crude $103.86
Spread (ICE- NYMEX) = $24.64(Friday, $25.19)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $79.46
ICE North Sea Brent crude $101.65
Spread (ICE- NYMEX) = $22.19 (Friday, $22.64)

* NYMEX futures contracts have rolled forward, we now show November and January for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $75+ NYMEX in January favoring high oil prices throughout the late fall and early winter although we may see further pressure to the downside. My last December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is seriously below its 200-day moving average of $51.92 (our new key level, 09/21 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The ORANGE light is turned on for Commodity Reflation with copper trading below $3.50/lb

The YELLOW light is turned on for Stable Markets with the VIX above the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates until mid-2013

The RED light is turned back on for Investor Confidence with investors very adverse to commodity-sensitive equities

The GREEN light is turned on our Fuel Gauge with oil below $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.63 in early trading at $79.22 (November contract, most active); Gold is down $21.7 to $1618.1 (December contract, most active); Silver is down $1.721 to $28.38 (December contract, most active); Copper is down $0.0350 at $3.2450 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $(not available); European Molybdenum Oxide (Bloomberg) is $14.35; LME cash seller is $14.74, LME moly 3-month seller's contract is $14.74

Stock Market Morning Update

The DOW is up 62.55 points to 10,834.03; the S&P 500 is up 1.49 points at 1137.92

Miners are mixed:

Barrick (ABX) $46.57 up 0.32%
Newmont (NEM) $63.37 up 0.81%
US Gold (UXG) $4.51 unchanged
General Moly (Eureka Moly, LLC) (GMO) $2.92 down 0.68%
Thompson Creek (TC) $6.29 down 1.56%
Freeport-McMoRan (FCX) $31.98 down 1.20% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.04 down 0.11%
Timberline Resources (TLR) $0.63 down 3.08%

The Steels are down (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $15.42 up 0.46% - global steel producer
POSCO (PKX) $77.21 down 0.92% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.94% at $1,301,837.35 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas Intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Note 2 - The impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd and was followed by an S&P credit downgrade. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

Headline photo by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Friday, September 23, 2011

The Colonel's Friday Thoughts on Gold

Light at the end of the tunnel?

My latest Kitco Commentary: Why is Gold More Volatile than Copper, Oil or Silver? (09-19-2011)

*** BREAKING NEWS *** COMEX gold is down $89.4 to $1,652.3/oz (10:12AM PDT); COMEX copper is trading at $3.2790/lb for a Au:Cu ratio of 505.1

This morning's...
COMEX Gold price = $1,690.9/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 105.36
Value Adjusted Gold Price© (VAGP) = $1,341.0/oz
COMEX - VAGP = $349.9/oz; gold is trading at a premium; key gold-referenced commodity ratios remain at recessionary levels (e.g., copper & oil)



Morning Miners!

It is 5:33 AM. Have a second cup of Raine's famous Red Label TGIF coffee. Looks like a second rocky market day with COMEX gold dropping another $50/oz to $1,690.9/oz and silver down $3.833 to $32.745.  Nuts,  I think we may be seeing a little light at the end of the I-80 tunnel...


The Colonel's input to the Weekly Kitco Gold Survey

Below is my weekly input to the Kitco gold survey. We may should see a relief rally in gold soon:

In the present market turmoil, there is a dash for liquidity with high correlation across most asset classes. Although COMEX gold has dropped precipitously, the yellow metal is actually doing quite well compared to copper, oil and silver on a relative basis (note 1). Today's gold value, as computed by the Eureka Miner’s Gold Value Index© (GVI), places it at a record premium to these commodities for 2010-2011 (note 2). There will be a market capitulation phase soon and gold will rise again in dollar price.

Note 1 - Most troubling is the present gold:copper ratio which broke 500 lb/oz this morning [500.78]; a more normal range is 300 to 400 lb/oz. During the Great Recession this ratio was in a range of 429 to 582 lb/oz during the banking scare of December 2008 and around 507 lb/oz for the S&P 500 bottom in March 2009.

Note 2 - Given historic norms, a gold price required to support copper, oil and silver prices is only $1,341.0/oz [i.e.Value Adjusted Gold Price (VAGP)] given this morning's gold price of $1,690.9/oz.

Here is an updated chart of the GVI to support my argument (a larger more readable plot is shown near the bottom of this blog page):


As you can see, we are presently at the top of both "high gold value" and volatility range.

Have a good weekend!


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index© (EMI) is below-par at 37.96, down from yesterday's 44.35 and below the 1-month moving average of 97.54. Today sets a new low for 2010 and 2011, the old low was 44.35 on September 22, 2011. The 1-month average is now below the 100-level putting us solidly in bear country..

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the new low set on 9/23/2011 (today) is 37.96. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used to update mining equity norms in the EMI on a monthly basis.

Gold Value Index (GVI

The Eureka Miner’s Gold Value Index© (GVI) is above-par at 105.36, up from yesterday's 103.80 and above its 1-month average of 98.90. Today is a new record high for 2011 at 105.36. The Value Adjusted Gold Price© (VAGP) is $1,341.0/oz or $349.9/oz below the current COMEX gold price.

GVI initially trended down from 6/7/2010 when it had a value of 100; gold regained value reversing the trend, moved sideways for a time and and headed back up with vigor. A sustained presence around the 100-level may prove to be a recession warning for a second dip down in the economy.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil derivatives are a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Debt Crisis Watch

July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI and GVI indices. Today, the DCI has a value of 220.4 up from yesterday's 218.0. Our benchmark is 100, a value of the DCI at a level above 200 is time for serious concern. We are now above that level.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $79.34
ICE North Sea Brent crude $104.53
Spread (ICE- NYMEX) = $25.19 (Yesterday, $25.03)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $79.72
ICE North Sea Brent crude $102.36
Spread (ICE- NYMEX) = $22.64 (Yesterday, $222.08)

* NYMEX futures contracts have rolled forward, we now show November and January for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $75+ NYMEX in January favoring high oil prices throughout the late fall and early winter although we may see further pressure to the downside. My last December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is seriously below its 200-day moving average of $51.92 (our new key level, 09/21 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The ORANGE light is turned on for Commodity Reflation with copper trading below $3.50/lb

The YELLOW light is turned on for Stable Markets with the VIX above the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates until mid-2013

The RED light is turned back on for Investor Confidence with investors very adverse to commodity-sensitive equities

The GREEN light is turned on our Fuel Gauge with oil below $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $1.17 in early trading at $79.34 (November contract, most active); Gold is down $50.8 to $1690.9 (December contract, most active); Silver is down $3.833 to $32.745 (December contract, most active); Copper is down $0.1120 at $3.3765 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $14.50; European Molybdenum Oxide (Bloomberg) is $14.35; LME cash seller is $14.74, LME moly 3-month seller's contract is $14.74

Stock Market Morning Update

The DOW is down 73.45 points to 10,660.38; the S&P 500 is down 2.33 points at 1127.33

Miners are mixed:

Barrick (ABX) $47.35 down 2.89%
Newmont (NEM) $62.54 down 4.14%
US Gold (UXG) $4.74 down 3.46%
General Moly (Eureka Moly, LLC) (GMO) $2.82 unchanged
Thompson Creek (TC) $6.43 down 1.83%
Freeport-McMoRan (FCX) $32.60 up 1.43% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $8.69 down 1.11%
Timberline Resources (TLR) $0.68 unchanged

The Steels are down (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $15.13 down 0.20% - global steel producer
POSCO (PKX) $77.32 down 0.90% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 2.48% at $1,337,670.45(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas Intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Note 2 - The impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd and was followed by an S&P credit downgrade. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

Headline photo by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market